Federal Reserve losing control

[isachar]

Excellent work/posts by all on this thread. Very insightful. Thanks.

The banks are being kept above water only by the FED's TAF.

This strategy by the FED amounts to a 'bet' that by providing the banks with an IV tube hooked up to (theoretically) inexhaustible FED credit it will keep them solvent long enough for some of the CDO/CMO paper the FED has taken in return to re-liquify to some degree.

More on the "credit" (nee' debt) crisis:

A Bubble That Broke the World: Lessons from the Great Depression Part IX. When Credit is Debt.

http://www.doctorhousingbubble.com/a-bu ... t-is-debt/

We are swimming in a world of debt. Somewhere in the past decade debt lost the negative connotation of being a four letter word. In fact, the language of so many things has changed and the ultimate ramifications now have sweet language to soften the utter destructiveness of the underlying instrument. Junk bonds are now looked at as high yield bonds. I don’t like junk but I sure love the sound of high yield! The most profound change has been the idea that credit has now supplanted the concept of debt. When we talk about the worldwide credit crisis what we are really talking about is the global debt problem. When you think of credit the underlying meaning is positive. You received credit for completing the assignment. Hey Joe, I give you great credit for working so hard on the project. We credit you sir for the excellent job here! It would be extremely different if credit cards were title debt cards. Or what if we called them, “instant layaway” cards instead of calling them platinum premium member cards.

The psychology of this housing bubble is absolutely fascinating and disturbing. When you really boil it down, you have to wonder what people were thinking. There were folks who are reluctant to place a $100 bet in Vegas yet they were able to purchase an overpriced home and many are now sitting on $100,000 or more of negative equity. Many would like to think they weren’t speculating because it was real estate but there was no fundamental reason for home prices to reach the level that they did. The irony of this all is that we still keep hearing that this is a credit crisis. The fact is that Americans were unable to keep this economy going without massive amounts of debt. Debt that fueled spending and accounted for a large percentage of our GDP.

In reality it was a large Ponzi scheme and in the end like all Ponzi schemes they come crashing down on their own weight. Today in our lessons from the Great Depression series we are going to look at a book written in 1932 called a Bubble that Broke the World by Garet Garrett. It is a fascinating look at the social reasons why bubbles form and ultimately collapse. It is worth a full read but we’ll go through some important passages here and parallel them to our current situation. This lesson is part IX in our continuing series:

1. Personal Story by a Lawyer from a Previous Asset Bubble. Can we Learn from the Past and How will the Housing Decline Impact You?

2. Lessons From the Great Depression: A Letter from a former Banking President Discussing the Bubble.

3. Florida Housing 1920s Redux: History repeating in Florida and Lessons from the Roaring 20s.

4. The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?

5. Business Devours its Young: Lessons from the Great Depression: Part V: Destroying the Working Class.

6. Crash! The Housing Market Free Fall and Client #10 Contagion.

7. Winston Smith and the Bailouts in Oceania: Lessons from the Great Depression Part VII.

8. Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear Market Rallies.

A Bubble That Broke the World

“Mass delusions are not rare. They salt the human story. The hallucinatory types are well known; so also is the sudden variation called mania, generally localized, like the tulip mania in Holland many years ago or the common-stock mania of a recent time in Wall Street. But a delusion affecting the mentality of the entire world at one time was hitherto unknown. All our experience with it is original.

This is a delusion about credit. And whereas from the nature of credit it is to be expected that a certain line will divide the view between creditor and debtor, the irrational fact in this case is that for more than ten years debtors and creditors together have pursued the same deceptions. In many ways, as will appear, the folly of the lender has exceeded the extravagance of the borrower.”

I think it is important to note that in this current bubble it does take two to tango. Many borrowers bought in many cases as speculators even though they thought they were making a prudent decision. It can be said that this is no more logical than buying a luxury car and expecting more than what you paid for it 5 years later. Ultimately when you go to sell the market will dictate the price. But not everyone participated in this mania. Look at these sobering numbers and I’ve tried to word it to change your perspective on what is going on.

According to the U.S. Census Bureau, 31.8 percent of all U.S. owner-occupied homes have no mortgage. 32 percent of the country rents. The vast majority of those remaining with mortgages have been financially responsible. Why should it now be the responsibility of those who managed their finances prudently to bailout the few who speculated — including irresponsible lenders who made loans to people who had no chance of ever paying it back?

Let us continue with the article:

“The general shape of this universal delusion may be indicated by three of its familiar features.

First, the idea that the panacea for debt is credit. Debt in the present order of magnitude began with the World War. Without credit, the war could not have continued above four months; with benefit of credit it went more than four years. Victory followed the credit. The price was appalling debt. In Europe the war debt was both internal and external. The American war debt was internal only. This was the one country that borrowed nothing; not only did it borrow nothing, but parallel to its own war exertions it loaned to its European associates more than ten billions of dollars. This the European governments owed to the United States Treasury, besides what they owed to one another and to their own people. Europe’s attack upon her debt, both internal and external, was a resort to credit. She called upon this country for immense sums of private credit-sums which before the war had been unimaginable-saying that unless American credit provided her with the ways and means to begin moving her burden of debt she would be unable to move it at all.

Result: The burden of Europe’s private debt to this country now is greater than the burden of her war debt; and the war debt, with arrears of interest, is greater than it was the day the peace was signed. And it is not Europe alone. Debt was the economic terror of the world when the war ended. How to pay it was the colossal problem. Yet you will find hardly a nation, hardly any subdivision of a nation, state, city, town or region that has not multiplied its debt since the war. The aggregate of this increase is prodigious, and a very high proportion of it represents recourse to credit to avoid payment of debt.”

How the tables have turned. We are now a largely debtor nation. We owe money to China, Japan, Europe, and many other foreign players. We are no longer a lender but the world’s greatest borrower. We are now a debtor in this game. In fact, each day we have to borrow large sums of money to keep consuming at current levels. Our trade deficits show this unnerving fact clearer than anything else. Simply looking at cargo coming into our large ports in San Pedro and Long Beach we see that 3 cargo containers come in with produced goods and we send out 1 container; many times when we export items it is raw materials. This imbalance is harming us. And of course, if we are to learn from Europe during the early part of the 1900s is that war debt drags an economy down into the dumps.

“Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life. If they cannot immediately afford them, that is, if out of their own resources these betterments cannot be provided, nevertheless people are entitled to them, and credit must provide them. And lest it should sound unreasonable, the conclusion is annexed that if the standard of living be raised by credit, as of course it may be for a while, then people will be better creditors, better customers, better to live with and able at last to pay their debts willingly.

Result: Probably one half of all government, national and civic, in the area of western civilization is either bankrupt or in acute distress from having over-borrowed according to this doctrine. It has ruined the credit of countries that had no war debts to begin with, countries that were enormously enriched by the war trade, and countries that were created new out of the war. Now as credit fails and the standards of living tend to fall from the planes on which credit for a while sustained them, there is political dismay. You will hear that government itself is in jeopardy. How shall government avert social chaos, how shall it survive, without benefit of credit? How shall people live as they have learned to live,

and as they are entitled to live, without benefit of credit? Shall they be told to go back? They will not go back. They will rise first. Thus rhetoric, indicating the emotional

position. It does not say that what people are threatening to rise against is the payment of debt for credit devoured. When they have been living on credit beyond their means the debt overtakes them. If they tax themselves to pay it, that means going back a little.

If they repudiate their debt, that is the end of their credit. In this dilemma the ideal solution, so recommended even to the creditor, is more credit, more debt.”

Was this written yesterday? Talk about repeating history again. This psychological notion that one is entitled to a better life regardless of your savings is not new. In fact, it seems that the mentality then is the same as today; if you can’t afford the artifacts of middle class life with your own saved money then it is probably the fault of lack of credit. Forget that it means you probably can’t afford it. And the solution offered at the time? More debt! I can hear Bernanke saying, “more credit for liquidity” and we are back at square one. Remember that Ben Bernanke is a student of the Great Depression so none of this is lost on him. Yet somehow he thinks the problem wasn’t too much debt but not enough “credit” quick enough. Well he just saw how impotent the Fed was with their rate cuts. He bought a bit of breathing room but we are still nowhere out of the woods. If we keep thinking that the only problem is the need for more debt we are going to spiral downward into a debtor’s hell. In many cases we may already be at this point.

“Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase

and exchange of wealth, and credit was its product. This inverted way of thinking was fundamental. It rationalized the delusion as a whole. Its most astonishing

imaginary success was in the field of international finance, where it became unorthodox to doubt that by use of credit in progressive magnitudes to inflate international trade the

problem of international debt was solved. All debtor nations were going to meet their foreign obligations from a favorable balance of trade. A nation’s favorable balance in foreign trade is from selling more than it buys. Was it possible for nations to sell to one another more than they bought from one another, so that every one should have a favorable trade balance? Certainly. But how? By selling on credit. By lending one another the credit to buy one another’s goods. All nations would not be able to lend equally, of course.

Each should lend according to its means. In that case this country would be the principal lender. And it was. As American credit was loaned to European nations in amounts rising to more than a billion a year, in the general name of expanding our foreign trade, the question was sometimes asked: “Where is the profit in trade for the sake of which you must lend your customers the money to buy your goods ?”

The answer was: “But unless we lend them the money to buy our goods they cannot buy them at all. Then what should we do with our surplus?” As it appeared that European nations were using enormous sums of American credit to increase the power of their industrial equipment parallel to our own, all with intent to produce a great surplus of competitive goods to be sold in foreign trade, another question was sometimes asked: “Are we not lending American credit to increase Europe’s exportable surplus of things similar to those of which we have ourselves an increasing surplus to sell? Is it not true that with American credit we are assisting our competitors to advance themselves against American goods in the markets of the world?”

Welcome to our new world. Guess where these foreign nations are putting their money? Does the idea of sovereign wealth funds ring a bell? Not only are they placing it back into their own countries building stronger internal economies but they are also buying the best businesses in the United States for cheap. This is all well in good if you look at it from a strictly economical stand point but what about countries like Russia or Venezuela that clearly do not have the same political ideologies as we do here. In fact, in some cases they are against the values of the country that is sending loads of money to them. Therein lies the problem. The solution would be simple in say the case of Venezuela in that we stop buying oil from them. But do you think the American people would go for that and see prices sky rocket? Of course not. They jumped to arms about a $30 tax break for the summer so you really have got to be kidding when it comes to mass psychology. If we are unwilling to reshape our economy and see the interconnectedness of the problem debt brings on we are going to wake up and see that America is up for sale to the world, pennies on the dollar. In fact, this may already be unavoidable and you need only look at the dollar for this to resonate.

“The answer was: “Of course that is so. You must remember that these nations you speak of as competitors are to be regarded also as debtors. They owe us a great deal of money. Unless we lend them the credit to increase their power of surplus production for export they will never be able to pay us their debt.”

Lingering doubts, if any, concerning the place at which a creditor nation might expect to come out, were resolved by an eminent German mind with its racial gift to subdue by logic all the difficult implication of a grand delusion. That was Doctor Schacht, formerly head of the German Reichsbank. He was speaking in this country. For creditor nations, principally this one, he reserved the business of lending credit through an international

bank to the backward people of the world for the purpose of moving them to buy American radios and German dyes. By this argument for endless world prosperity as a

product of unlimited credit bestowed upon foreign trade, we loaned billions of American credit to our debtors, to our competitors, to our customers, with some beginning toward the backward people; we loaned credit to competitors who loaned it to their customers; we loaned credit to Germany who loaned credit to Russia for the purpose of enabling Russia to buy German things, including German chemicals. For several years there was ecstasy in the foreign trade. All the statistical curves representing world prosperity rose like serpents rampant.

Result: Much more debt. A world-wide collapse of foreign trade, by far the worst since the beginning of the modern epoch. Utter prostration of the statistical serpents. Credit representing many hundreds of millions of labor days locked up in idle industrial equipment both here and in Europe. It is idle because people cannot afford to buy its product at prices which will enable industry to pay interest on its debt. One country might forget its debt, set its equipment free, and flood the markets of the world with cheap goods, and by this offense kill off a lot of competition. But of course this thought occurs to all of them, and so all, with one impulse, raise very high tariff barriers against one another’s goods, to keep them out. These tariff barriers may be regarded as instinctive

reactions. They do probably portend a reorganization of foreign trade wherein the exchange of competitive goods will tend to fall as the exchange of goods unlike and noncompetitive tends to rise. Yet you will be almost persuaded that tariff barriers as such were the ruin of foreign trade, not credit inflation, not the absurdity

of attempting by credit to create a total of international exports greater than the sum of international imports, so that every country should have a favorable balance out of which to pay its debts, but only this stupid way of people all wanting to sell without buying.”

Our trade imbalance is a danger to our country’s long-term prosperity and has global implications beyond economics. It is certain if we continue on this path there will be a worldwide meltdown. There has been no desire from any political party to reign in the manic spending of the American people. Somehow they thought that for a decade of trading paper back to one another, flipping houses, and taking money out of homes to add upgrades was the idea of a healthy economy. What we ended up doing is simply rearranging the deck chairs on the Titanic while the world built up stronger production capacity and has siphoned off a competitive advantage in many areas. Spending more than you make impacts the world more than you think. It is time to get serious about this and make it a national priority to get our books in order. Former Federal Reserve Chairman Paul Volcker knew this and jacked up the Fed Funds Rate into the double-digits to reign in inflation. People did not like this but in the end it made us more productive in the 80s and 90s. Who will be the next person to reign in spending before this bubble breaks the world?

[ninakat]

Note that this is from Marketwatch -- mainstream media.

Megabubble waiting for new president in 2009
'Numbers racket' exposes potential disaster for economy, markets
By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Remember that big ah-ha moment in the 1939 classic "The Wizard of Oz?" Dorothy wants to see the Wizard. His voice booms: "Do not arouse the wrath of the Great and Powerful Oz! Come back tomorrow!" Afraid, Lion, Tin Man, Scarecrow shake. Dorothy's dog runs up, tugs on a curtain. She chases Toto, pulls curtain open:

"Who are you?" Dr. Marvel stutters: "Well, I - I - I am the Great and Powerful, Wizard of Oz." Dorothy: "You are? I don't believe you!" He replies: "No, it's true. There's no other Wizard except me." Dorothy's miffed: "Oh, you're a very bad man!" Wizard: "Oh, no, my dear. I'm a very good man. I'm just a very bad Wizard."

2009 Sequel: Script exposes diabolical cover-up conspiracy

Flash forward: Real life, Washington, new leaders, a new Congress, old wizardry. Be forewarned: No matter who's elected president, America will soon see a massive statistical curtain pulled back, exposing a con game of historic proportions. And when that happens, you and I will suffer another ear-splitting global meltdown, bigger than today's housing-credit crisis, dragging us deep into a recession and bear market for years.

Cast: New 'leading man' from old Nixon political machine

Yes, the lead character pulling back the curtain is none other than Kevin Phillips, a former Republican strategist for Nixon, and today America's leading political historian. Phillips just published "Bad Money: Reckless Finance, Failed Politics & the Crisis of American Capitalism," everything you need to know about today's credit meltdown.

Scene 1: Numbers racket hiding behind Washington curtain

Opening shot: Phillips pulling back the curtain, exposing charlatan Wizards in a brilliant Harper's Magazine article: "Numbers Racket: Why the economy is worse than we know." Far worse. Buy it, read it -- this is essential reading if you really want to understand the depth of today's political as well as economic impending meltdown, and the harsh realities facing Washington, Wall Street, Corporate America, and Main Street in 2009 and beyond ... harsh because we cannot cover up the truth much longer.

Scene 2: Statistics, Washington's new WMDs, a time bomb

"If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it really is. The corruption has tainted the very measures that most shape public perception of the economy," especially three key numbers, CPI, GDP and monthly unemployment statistics.

Scene 3: Backflash, 'It's always the cover-up, stupid!'

As I read further I couldn't help but think about similar traps politicians get themselves (and us) into. Remember nice guys like Scooter Libby and Bill Clinton: The crime wasn't their original stupidity, but their lying during the cover-up. Here, Phillips reviews endless statistical cover-ups since the 1960s and concludes there was no "grand conspiracy, just accumulating opportunisms." I call it plain old greed. And every step of the way the media went along with the con game played by politicians and economists.

Scene 4: Real numbers torture us ... like water-boarding!

How bad is it? "The real numbers ... would be a face full of cold water," says Phillips. "Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9% and 12%; the inflation rate is as high as 7% or even 10%; economics growth since the recession of 2001 has been mediocre, despite the surge in wealth and incomes of the superrich, and we are falling back into recession."

Scene 5: Most economists hushed, work inside conspiracy

Compare that to the phony stats Washington feeds the press and public: Unemployment 5%, inflation 2% and long-term growth at 3%-4% (actually more like 1%). For example, just last week the L.A. Times reported that while "gasoline prices are up more than 20% from a year ago and food prices have risen 5%," Washington says "inflation was fairly mild last month." A Wells Fargo economist shook his head in disbelief: That report isn't "worth the paper it was printed on." Most economists are quiet, working for the conspiracy.

Scene 6: No integrity, they cannot be trusted to tell truth!

The same can be said of any government report, every speech made by today's leaders: All hype, lies and propaganda intended to deceive us. Treasury Secretary Henry Paulson's clearly playing the game: Remember what the former Goldman Sachs CEO told Fortune last July as our credit meltdown was metastasizing into a worldwide contagion: "This is far and away the strongest global economy I've seen in my business lifetime." He has no credibility. He knew the truth. He knew the government's "numbers racket;" after all, he helped create the problems years earlier at Goldman.

Scene 7: There's enough Kool-Aid for everyone to drink

The plot's unraveling: The lies accumulate and compound one on top of the another ... get passed on ... keep mounting ... forcing successive new generations of politicians to drink the same poisonous Kool-Aid ... keep the lies alive ... going strong ... till everyone believes the lies are really "the truth," or at least an inconvenient truth ... as the hoax becomes the conventional wisdom ... not only by Washington, Wall Street, Corporate America and the media, but also 300 million Main Street Americans.

Scene 8: Inflation statistics are America's new 'guillotine'

The biggest of all lies is with inflation. Understating inflation "hangs over our heads like a guillotine," says Phillips. Yet if Washington told us the truth "it would send interest rates climbing and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American Economy." So we keep sipping the Kool-Aid.

Scene 9: Washington and Wall Street delusional in 'Land of Oz'

"Were mainstream interest rates to jump into the 7% to 9% range -- which could happen if inflation were to spur new concern -- both Washington and Wall Street could be walking on quicksand," warns Phillips. "The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy."

Scene 10: Cover-up failing ... king really has no clothes

Yet everyone still acts paralyzed, unable (or unwilling) to do anything to stop this lethal musical chairs charade ... till it's too late, or a catastrophe wakes us. Meanwhile, we act as if we had no choice but to put up with the crashes of 1987 and 2001 and 2007. Just "normal" bull/bear cycles. So like lemmings driven over a cliff, we'll blindly accept the next crashes, as each increase in frequency and intensity. Next in 2011? As war debt piles? As reforming health care, Social Security and Medicare are delayed? As we deny and deceive ourselves, perpetuate the lie ... except notice, out of the corner of your eye, at the edge of the screen, a curtain's being pulled open, slowly, our once-mighty statistical king, the Wizard of Washington really has no clothes on.

Scene 11: Millions of co-conspirators in massive cover-up

Still, we let ourselves be conned. Why? "The rising cost of pensions, benefits, and interest payments -- all indexed or related to inflation -- could join the cost of financial bailouts to overwhelm the federal budget," says Phillips. But it's a heads-we-lose-tails-we-can't-win bet. "As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering" Yes, Wall Street and the rich love playing this game.

Scene 12: Rich get richer hiding under 'statistical camouflage'

So who really "profits from the low-growth U.S. economy hidden under statistical camouflage?" he asks rhetorically. Certainly not the masses: "Might it be Washington politicos and affluent elite, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?" Yes, yes, yes, a voice screams off-camera! Then a gun shot rings out ... dull thud ... silence ... haunting music builds, filling the theater ... signaling the end of this tragi-comedy ... although like Sartre's "No Exit," you know this drama will never end ... until ... the next sequel ...

Roll credits: Who was that masked man?

Kudos to the masked curtain-puller. Yes folks, it's the same Kevin Phillips who wrote "American Theocracy, The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century;" "The Politics of Rich and Poor: Wealth and Electorate in the Reagan Aftermath;" "American Dynasty: Aristocracy, Fortune, and the Politics of Deceit in the House of Bush" and others. In his "Wealth and Democracy: A Political History of the American Rich," Phillips warned us that "most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out." Slowly, fade to black ....

[StarmanSkye]

Thanks for the posting, Ninakat: Like many of the previous articles, I found it VERY insightful.

Below, Phillip's article, well worth reading in its entirety for the details he provides of how Washington has engaged in the most deceitful number-manipulation fraud to disguise the true (dismal) state of unemployment, inflation and economic activity since the 70s -- and which has shortchanged the government's fiscal obligation while enabling the predation of financial speculators and the wholesale indenture of the public to banking institutions, as legions of Wall Street parasites and corporate piranha conspire with political mafiosa to strip what's left the working middle class to the bone.

I admit to surprise that Farrell's mainstream Marketwatch article was so frankly damning as to acknowledge and even draw attention to the methodical conspiracy of fraud that past decades' of politicians, technocrats, financial analysts, economic pundits and media editors/reporters have been engaged in -- reflecting the hypocrisy, self-interest, betrayal, opportunism and malfeasance that is the true face of anything-goes American-style capitalism. Likely, Farrell's daring honesty is a measure of how thoroughly discreditted and untrustworthy financial officialdom have rendered themselves to a public increasingly aware of how gullible and foolish they've been -- and anxious for an accounting.

Yet another eye-opening review of how have been thoroughly screwed. As IF the now 47-trillion dollar US debt can EVER be, or was ever meant to be, settled without our enslavement. It's obscene beyond words that credit and debt can ever count for more than millions of lives, forming the basis for the west's addiction to war and killing as an instrument of foreign policy. A symptom of how sick our society is, infected by the greed and schemes of the uber elites. Damn them to Hell.

***
Reposted Harpers article via Carolyn Baker's 'Speaking Truth to Power' blog:
http://carolynbaker.net/site/content/view/489/

THE NUMBERS RACKET: WHY THE ECONOMY IS WORSE THAN WE KNOW, Kevin Phillips
Tuesday, 13 May 2008
HARPERS MAGAZINE, MAY, 2008

If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being "anchored" as food and energy costs begin to soar.

The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

Let me stipulate: the deception arose gradually, at no stage stemming from any concerted or cynical scheme. There was no grand conspiracy, just accumulating opportunisms. As we will see, the political blame for the slow, piecemeal distortion is bipartisan—both Democratic and Republican administrations had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector. To see how, we must revisit forty years of economic and statistical dissembling.

Two Views of Consumer Inflation
http://carolynbaker.net/site/images/con ... illips.gif

Sources: John Williams, ShadowStats.com
U.S. Bureau of Labor


A SHORT HISTORY OF "POLLYANNA CREEP"

The story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers marred the image of Camelot-on-the-Potomac and the new administration appointed a committee to weigh changes. The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs—even if this was because none could he found—were labeled "discouraged workers" and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified. Lyndon Johnson, for his part, was widely rumored to have personally scrutinized and sometimes tweaked Gross National Product numbers before their release; and by the 1969 fiscal year, Johnson had orchestrated a "unified budget" that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.

Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He proposed albeit unsuccessfully—that the Labor Department, which prepared both seasonally adjusted and non-adjusted unemployment numbers, should just publish whichever number was lower. In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between "core" inflation and headline inflation. It the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of "volatility," categories that happened to he troublesome: at that time, food and energy. Core inflation could he spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called "inflation ex-inflation"—i.e., inflation after the inflation has been excluded.)

I n 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different "Owner Equivalent Rent" measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs. Because low inflation encourages low interest rates, which in turn make it much easier to borrow money, the BLS's decision no doubt encouraged, during the late 1980s, the large and often speculative expansion in private debt—much of which involved real estate, and some of which went spectacularly bad between 1989 and 1992 in the savings-and-loan, real estate, and junk-bond scandals. Also, on the unemployment front, as Austan Goolsbee pointed out in his New York Times op-ed, the Reagan Administration further trimmed the number by reclassifying members of the military as "employed" instead of outside the labor force.

The distortional inclinations of the next president, George H.W. Bush, came into focus in 1990, when Michael Boskin, the chairman of his Council of Economic Advisers, proposed to reorient U.S. economic statistics principally to reduce the measured rate of inflation. His stated grand ambition was to move the calculus away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics, however, countered that the underlying goal, driven by worry over federal budget deficits, was to reduce the inflation rate in order to reduce federal payments—from interest on the national debt to cost-of-living outlays for government employees, retirees, and Social Security recipients.

It was left to the Clinton Administration to implement these convoluted CPI measurements, which were reiterated in 1996 through a commission headed by Boskin and promoted by Federal Reserve Chairman Alan Greenspan. The Clintonites also extended the Pollyanna Creep of the nation's employment figures. Although expunged from the ranks of the unemployed, discouraged workers had nevertheless been counted in the larger workforce. But in 1994, the Bureau of Labor Statistics redefined the workforce to include only that small percentage of the discouraged who had been seeking work for less than a year. The longer-term discouraged—some 4 million U.S. adults—fell out of the main monthly tally. Some now call them the "hidden unemployed." For its last four years, the Clinton Administration also thinned the monthly household economic sampling by one sixth, from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities; the reduced sample (and a new adjustment formula) is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Despite the present Bush Administration's overall penchant for manipulating data (e.g., Iraq, climate change), it has yet to match its predecessor in economic revisions. In 2002, the administration did, however, for two months fail to publish the Mass Layoff Statistics report, because of its embarrassing nature after the 2001 recession had supposedly ended; it introduced, that same year, an "experimental" new CPI calculation (the C-CPI-U), which shaved another 0.3 percent off the official CPI; and since 2006 it has stopped publishing the M-3 money supply numbers, which captured rising inflationary impetus from bank credit activity. In 2005, Bush proposed, but Congress shunned, a new, narrower historical wage basis for calculating future retiree Social Security benefits.

By late last year, the Gallup Poll reported that public faith in the federal government had sunk below even post-Watergate levels. Whether statistical deceit played any direct role is unclear, but it does seem that citizens have got the right general idea. After forty years of manipulation, more than a few measurements of the U.S. economy have been distorted beyond recognition.



What Does "Unemployment" Mean?
http://carolynbaker.net/site/images/une ... illips.gif
source: US Bureau of Labor Statistics


AMERICA'S "OPACITY" CRISIS

Transparency is the hallmark of democracy, but we now find ourselves with economic statistics every bit as opaque—and as vulnerable to double-dealing—as a subprime CDO. Of the "big three" statistics, let us start with unemployment. Most of the people tired of looking for work, as mentioned above, are no longer counted in the workforce, though they do still show up in one of the auxiliary unemployment numbers. The BLS has six different regular jobless measurements—U-1, U-2, U-3 (the one routinely cited), U-4, U-5, and U-6. In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the "official" number. The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the "marginally attached," a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been "bought off the unemployment rolls" by government programs such as Social Security disability, whose recipients are classified as outside the labor force.

Second is the Gross Domestic Product, which in itself represents something of a fudge: federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable. The GDP has been subject to many further fiddles, the most manipulatable of which are the adjustments made for the presumed starting up and ending of businesses (the "birth/death of businesses" equation) and the amounts that the Bureau of Economic Analysis "imputes" to nationwide personal income data (known as phantom income boosters, or imputations; for example, the imputed income from living in one's own home, or the benefit one receives from a free checking account, or the value of employer-paid health-and-life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP. John Williams, the economic statistician, is briskly contemptuous of GDP numbers over the past quarter century. "Upward growth biases built into GDP modeling since the early 1980s have rendered this important series nearly worthless," he wrote in 2004. "[T]he recessions of 1990/1991 and 2001 were much longer and deeper than currently reported [and] lesser downturns in 1986 and 1995 were missed completely."

Nothing, however, can match the tortured evolution of the third key number, the somewhat misnamed Consumer Price Index. Government economists themselves admit that the revisions during the Clinton years worked to reduce the current inflation figures by more than a percentage point, but the overall distortion has been considerably more severe. Just the 1983 manipulation, which substituted "owner equivalent rent" for home-ownership costs, served to understate or reduce inflation during the recent housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.

The hedonic adjustment, in particular, is as hard to estimate as it is to take seriously. (That it was launched during the tenure of the Oval Office's preeminent hedonist, William Jefferson Clinton, only adds to the absurdity.) No small part of the condemnation must lie in the timing. If quality improvements are to be counted, that count should have begun in the 1950s and 1960s, when such products and services as air-conditioning, air travel, and automatic transmissions—and these are just the A's!—improved consumer satisfaction to a comparable or greater degree than have more recent innovations. That the change was made only in the late Nineties shrieks of politics and opportunism, not integrity of measurement. Most of the time, hedonic adjustment is used to reduce the effective cost of goods, which in turn reduces the stated rate of inflation. Reversing the theory, however, the declining quality of goods or services should adjust effective prices and thereby add to inflation, but that side of the equation generally goes missing. "All in all," Williams points out, "if you were to peel back changes that were made in the CPI going back to the Carter years, you'd see that the CPI would now be 3.5 percent to 4 percent higher"—meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

Furthermore, when discussing price pressure, government officials invariably bring up "core" inflation, which excludes precisely the two categories—food and energy—now verging on another 1970s-style price surge. This year we have already seen major U.S. food and grocery companies, among them Kellogg and Kraft, report sharp declines in earnings caused by rising grain and dairy prices. Central banks from Europe to Japan worry that the biggest inflation jumps in ten to fifteen years could get in the way of reducing interest rates to cope with weakening economies. Even the U.S. Labor Department acknowledged that in January, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest surge since record-keeping began in 1982. From Maine to Australia, from Alaska to the Middle East, a hydra-headed inflation is on the loose, unleashed by the many years of rapid growth in the supply of money from the world's central banks (not least the U.S. Federal Reserve), as well as by massive public and private debt creation.

THE U.S. ECONOMY EX-DISTORTION

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.

Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments—all indexed or related to inflation—could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis "can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . .With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates." Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.

The credit markets are fearful, and the financial markets are nervous. If gloom continues, our humbugged nation may truly regret losing sight of history, risk, and common sense.

[isachar]

Current circumstances do not allow for the elimination of the possibile collapse scenario in the following article.

The economic future of the US lies in the hands of the Chinese, Japanese, Russian's, OPEC, and (surprisingly Afghanistan), to the extent they are willing to keep their currency artificially low so we can afford to buy their goods, keep their domestic interest rates artificially low (to support the carry trade necessary for financial markets to maintain liquidity), keep exchanging oil for depreciating US scrip, keep buying/holding Treasuries, and in the case of the latter - keep farming lots of poppies further keep key mideast and other banks liquid via the opium trade.

The international trade in 'illegal' drugs is probably among the top 5 largest components of international trade. Oil and related products, food, and possibily minerals and/or chemicals would likely exceed it, but I can't think of much else off the top of my head.

http://groups.google.com/group/misc.inv ... ee4dbac8a2

"Everybody knows that the dice are loaded. Everybody rolls with their
fingers crossed. Everybody knows the war is over. Everybody knows
the good guys lost. Everybody knows the fight was fixed. The poor
stay poor, the rich get rich. That's how it goes, Everybody knows" -
Leonard Cohen


PROTOCOLS FOR ECONOMIC COLLAPSE IN AMERICA
by
Al Martin


And this is how the U.S. Treasury would handle an economic collapse.
It's called the 6900 series of protocols. It would start with
declaring a force majeure, which would immediately be interpreted by
the marketplaces as a de facto repudiation of debt. Then the SEC and
the various regulatory exchanges would anticipate the market's
decline, hour by hour -- when Japan's markets opened the next day,
what would happen when the European markets, and all the inter-
linkages of the global markets. On the second day, US Special Forces
would be dropped in by parachute in the cities where the twelve
Federal Reserve district banks are located.


The origin of these protocols comes from the Department of Defense.
This is contingency planning for a variety of post-collapse scenarios.
Those scenarios would include, obviously, military collapse, World War
III, in other words, and its aftermath. What we're talking about now
is aftermath -- how the aftermath would be handled.


One does not necessarily know how the events would transpire that
would cause the collapse, whether it's military collapse or economic
collapse. In World War III, it would become obvious -- when the
mushroom cloud started to appear over cities.


Economic collapse scenarios were always premised on the basis of a US
declaration of force majeure on debt service. It's a very extensive
scenario. The scenarios are all together, i.e., military, economic,
political and social complete destabilization leading to collapse.
Then they break down individual scenarios. In the economic collapse
scenario, the starting point would be the United States Treasury
declaring a force majeure on debt service, which is de facto
repudiation, and that's how it would be interpreted by the world's
capital marketplaces. Then the scenario goes on from there. The US
Treasury would obviously declare a force majeure sometime after the
European markets had settled down. In other words, they had gone out
on the day, which means 11:38 a.m. EDT, our time. They'd wait until
the European markets closed, and the US markets had been open for a
couple of hours. That's when they'd determine how to begin the process
of unwinding or controlling the collapse to the best extent possible,
mainly because they know that the greatest hedge pressure would be
people seeking to use other markets to hedge their long exposure in
the United States and that the US would be the biggest seller in all
the rest of the world's markets. Therefore you would want to declare
the force majeure when the rest of the world's markets closed. The
declaration of force majeure would be precipitated by the declaration
that the United States is no longer able to service its debt. That's
pretty simple. Who makes that decision? The Treasury Department. The
President does not make that decision. The Secretary of the Treasury
does. He has that authority.
You might ask -- wouldn't he have his arm twisted not to do that?


The answer is that if there isn't any money left to service the debt,
it doesn't make any difference what the current regime might want to
do.


The day of reckoning is now coming. What has happened in the interim,
from 2001 to present, is dynamic, global economic deterioration. The
economic deterioration visited upon the United States by Bushonomics
is not a localized event. It is, in fact, global. We have a planet now
that is sinking into a sea of red ink.


The United States is consuming 80% of the planet's savings rate to
finance its debt. The central banks of Germany, Japan and Saudi Arabia
are no longer the powerhouses they used to be. Their reserves have now
been substantially depleted. They can, therefore, no longer hide the
fact that they own a certain number, likely in the trillions of
dollars, of U.S. Treasury debt that isn't being serviced, because they
can't hide it through bookkeeping tricks anymore because their
reserves are so depleted.


Therefore somebody has covertly been putting demands on the Bush-
Cheney regime for payment. Why do you think 2900 metric tons of gold
is depleted from U.S. inventory since March of `01?


Why do you think that $2 billion in currency seized from Iraq last May
is now unaccounted for?


Someone is putting demands on the Bush-Cheney regime. Someone is
saying to the Bushonian Cabal that -- You've got to start servicing
this debt because we, foreign central banks, are in nations - European
and Asian - whose reserves are now nearly exhausted.


Who could be putting that kind of pressure on them?


It has to be coming from whoever is organizing this thing at the very
top, which I would tend to think has got to be most likely a cabal of
people that would involve Henry Kissinger, James Baker, George
Schultz, possibly William Simon. It would be somebody at the very top
that is familiar with how to do this. It would have to be someone
familiar with finances.


So would this be one faction of a cabal blackmailing or forcing
another faction? No, it's not really blackmailing. It's being done out
of desperation. The German, Japanese and Saudi central banks are
saying to the Bushonian cabal, You've got to start servicing this debt
because we don't have the reserves to cover you anymore. We can no
longer make it appear that the debt is being serviced because our own
reserves are so substantively depleted. Therefore you must begin to
cover this debt. If you don't, then, at some point, we will have to
publicly admit in order to save our own necks -- that we were the end
buyers of a lot of stealth debt, a lot of debt that your Treasury
issued illegally and has never serviced. That would then expose the
whole cabal.


The Kissinger-Baker faction are at the top of how this was done on the
economic side of the equation. They were not the original insiders so
much, but the managers of the conspiracy from the U.S. Treasury, to
wit, the U.S. Treasury and Federal Reserve role-play the part.


Take Henry Kissinger. It may not have occurred to anyone why in the
last 3 years Henry Kissinger has been back in Washington more than he
has in the last 30 years. And why are all these quiet meetings in
Washington with alleged senior Bush-Cheney regime officials, as
foreign news services endlessly put it. It's because Kissinger is the
point man. He's the one that is telling them the disposition of other
foreign central banks.


Kissinger would probably also be involved in transfer or hypothecation
of any assets from the cabal. In other words, they're being stolen
from the American people by the Bush-Cheney regime and the Bushonian
Cabal, and they are being used to hypothecate, transfer, service, or
otherwise carry this debt held by certain foreign central banks.


The process of unraveling has already begun because of ever-spiraling
Bushonian budget deficits. The Bush-Cheney regime, even in its overt
policies (now they're overt political, economic, social and military
policies) is generating $600-billion-plus deficit per year, which is
consuming 80% of the planet's net savings rate.


It doesn't have the slack. In other words, it can't refinance stealth
debt by issuing more stealth debt anymore. Nor can they bleed money
out of the system like they could in the 1980s by hiding it when the
overt policies of the Bush-Cheney regime are already producing a
budget deficit of 6% of Gross Domestic Product. There is no other
mechanism that they could use anymore to hide expansion of debt that
could be used to service said stealth debt, and they are, frankly,
running out of assets that they can steal from the American people.


So the proverbial day of reckoning is coming. The Bush-Cheney regime
(and I give them credit for this) are telling the American people
what's coming, knowing the American people are too stupid to
understand. They are telling the American people about the re-
institution of the Gold Confiscation Act and the sudden scrapping of
the Treasury's emergency post-collapse gold note scheme to maintain
domestic liquidity.


David Walker, US Comptroller General and chief of the GAO has said
that should the Bush-Cheney regime be re-ensconced into power and,
hence, the scourge of Bushonomics persist, that the United States
could no longer service its debt beyond 2009. They're not hiding it
from anybody anymore. They are telling you what's happening. Now, what
does that mean? The key is in what Walker is saying when he says the
debt can no longer be serviced. I've been asked this on the radio
shows. People have noticed what Walker said because he's out in the
news more often than he used to be. It's unusual for the Comptroller
General of the United States, which is a rather arcane position, to be
out in the news so much.


It simply means that when he says the United States will no longer be
able to sustain Bushonian budget deficits, he means that by 2009, if
Bush-Cheney have a second term in office, the United States will be
consuming 100% of the planet's savings rate to finance Bushonian
budget deficits.


Therefore, if the planet can no longer generate any more liquidity to
lend to the United States, one of three things have to happen: A)
There has to be a sudden and dramatic reduction in federal spending.
There are only two places that can come from. There would have to be
an immediate $100-billion cut in defense spending, which would end any
hopes the Republicans had of getting into office for years to come
because it would destroy any confidence the NFWCs (Naïve Flag Waving
Crowd) had in them. Or you would have to scrap the multi-trillion-
dollar Bushonian tax cuts for the Republican rich, something that's
equally unpalatable.


The other option, B, as Paul O'Neill mentioned, is a dramatic increase
in the rate of federal income taxation from the current nominal rate
of 28% to 65%, which is what the Treasury Department estimated would
be required post-2009 to provide the U.S. Treasury with sufficient
revenues to continue to service debt.


The third option, or C, becomes the declaration of a force majeure on
credit service of U.S. Treasury debt by the United States Treasury,
which is tantamount and would be accurately construed as de facto debt
repudiation by the United States of America.


There are other signs to look for. They're not going to happen now,
but if Bush-Cheney is re-elected, you'll begin to see more signs that
the end is coming. I know a lot of people may disagree, but you wait
and see. If Bush-Cheney has a second term, see if they do not
institute some currency expatriation control. See if that doesn't come
in the way Nixon tried it in May-June of 1971.


In the second term, there will be some sort of currency expatriation
control in the United States, but there will also be loopholes that
will allow the large money to escape. The restrictions will apply to
the 10- and 20-thousand-dollar people. It ain't going to apply to the
10- and 20-million-dollar people. It would be self-defeating to do
that.


When that day comes, in other words, when the U.S. Treasury declares a
force majeure on debt, it wouldn't be broad-cast on mainstream media.
There's no sense because the American people don't even understand
what it means. But the announcement would actually be put on the
Federal Reserve wire system, which would, of course, immediately be
picked up by all media outlets anyway.


The U.S. Treasury would declare a force majeure on debt after the
Asian and European markets closed, probably at 12:30 p.m. EDT. The
reason why that hour was always selected is because Asian and European
markets close. It's also the lunch hour for the markets. It's when
you're going to have the fewest people on the floor of the exchanges.
That would be the ideal time to make such an announcement.


A few seconds after that announcement was made, all United States
markets, both equities debt and commodities i.e., stock, bonds,
commodities, that have trading collars or permissible daily limits
would all be limit-offered with pools. Limit-offered means that there
are more sellers at the limit i.e., limit down, than there are buyers.


So-called 'pools' would immediately begin to form, probably a thousand
contracts every few minutes. 'Limit-offered with pools' - this is
trader language. Pools to sell 2,000 lots, 3,000 lots. That means, the
number of sellers over and above the available buyers at the limit-
offered price. That would begin to build.


By 1:00, the news would begin to sink in because it would take awhile
before panic selling would arise from the public. This news is being
released at lunch hour.


A lot of the American people initially would not even understand the
temerity of the news. You would see professional selling first, and as
that professional selling intensified over the afternoon, the SEC, the
CFTC, NASDAQ, and various market regulatory authorities would begin to
institute certain emergency market protocols. This would be the
installation of the so-called 'declaration of fast market conditions,'
for instance; the declaration of 'no more stop orders,' the
declaration of 'fill at any price,' etc. in a desperate bid to
maintain liquidity.


That first day, the Dow Jones Industrial Average and related indices
on a percentage basis would lose about 20% of their value by the close
of business that day. The real impact would come overnight when the
American people found out what this was all about and when it was
explained to them.


At 7:30 a.m. EDT, the Tokyo markets would open, and no price would be
affixed for probably three or four hours into the session due to the
avalanche of selling. Once prices were established, the government of
Japan would close all of its financial markets. Europe would not even
open. All European governments would close all capital exchanges the
next day.


The United States would, in order to accommodate global electronic
trading, attempt to open the market on the second day, which they
would do, regardless of price, just to maintain some liquidity. At the
end of Day Two, the Dow Jones and related indices, would have lost two
thirds of their value, and prices would be set accordingly.


On Day Three, the New York Stock Exchange, the SEC and other related
agencies would recommend to the United States Treasury and the Federal
Reserve that all markets be closed. That would be on the morning of
Day Three. Eleven a.m., the Federal Reserve would then order all
domestic banks closed. All of the twelve Federal Reserve district
banks would (30 minutes later) have special U.S. forces parachuted in
and around them to secure whatever gold bullion reserves they had
left.


Day Three, 9:00 p.m., the President of the United States would declare
a state of martial law. All financial transactions would come to an
end. The Treasury would act to formally de-monetize the U.S. dollar
and declare it worthless.


This would be totally unprecedented. In the past, collapses have been
temporary and have been brought back up. But what we're talking about
now is the end.


These protocols that I'm referring to aren't even all that secret.
They were publicly available all through the Clinton era. These are
Treasury protocols that were instituted mostly in the late 1970s when
the Treasury and Federal Reserve began to feel that it was important
to have an emergency-collapse protocol in place.


What precipitated the timing of this was the inflationary spiral of
the late 1970s. The U.S. Treasury and the Federal Reserve were both
concerned that this inflationary spiral, which was occurring not only
domestically but globally, might lead to a global, uncontrollable
hyper-inflation that the Federal Reserve or major central banks could
not stop by traditional means, i.e., by raising interest rates and
contracting money supply.


There was also the recognition, of course, that global central reserve
bank bullion inventories had been so depleted over the previous 30
years that any re-institution of a species currency, even on a
temporary basis, and even within a regional or individual nation-state
basis, was no longer possible.


This is an analogy. In a military scenario, it's like the President of
the United States pushing the final red button -- the commit button.
The Treasury Secretary of the United States has a similar mechanism.
It's called the yellow button, the commit button. The Secretary of
Defense has the same system. This is what happens. Computer program
starts to institute these protocols. Imagine the complexity of trying
the manage all this. I think it's going to happen all simultaneously.
There are hundreds of different agencies involved, both domestically
and internationally. In order to maintain liquidity for as long as
possible, it has to be extremely well-coordinated, and there must be
existing collapse protocols that can be used.


The reason I was familiar with them was because I used to see the U.S.
Treasury 6900 Series Collapse Protocol, 6903, 6904 there'll be A, B,
and so on which keyed in to the Department of Defense to be
incorporated within the Department of Defense's own World War III
scenario and various types of military/ political/ social instability/
war/ pestilence, chaos, etc. scenarios.


All federal agencies had individual collapse protocols that ultimately
got coordinated through the Department of Defense. Obviously, the
Department of Defense would be the ultimate coordinator because it
would need to have special forces available, on a stand-by basis,
ready, that could quickly parachute into areas all over the country,
into the cities particularly, to secure federal properties and assets.


And that's literally how it would begin. By the end of the third day,
it would be all over -- a state of martial law. We're not talking
about war, now; this is just economic collapse.


There's no military implication here, no political, no social
implication or policy directive thereunto. This is strictly economic
collapse. By the end of Day Three, effectively, all banks in the world
will be shut down, all paper currencies will become valueless. Martial
law would be declared. There would be no continuing transactions, at
least for a period of time, of commodities. All providers of fuels and
foods would be shut down automatically.


They have this in great detail too. U.S. Department of Defense Special
117th Assault Unit would parachute in to seize control of the cattle
yards in Oklahoma City. This is how well it's planned. In other words,
economic collapse would automatically involve expansive military
action and control.


By the end of the third day, when you no longer have a domestic medium
of exchange, you have to have secured food and fuel stocks. You've got
to have troops that have secured distribution points where there is
food and fuel stocks, warehouses, tanks, etc. Otherwise people are
just going to go get them, and the people have to know that if they
try to go break into that store and steal that loaf of bread, they're
going to be shot.


Protocols for environmental disasters are called 'scaling-circle
scenarios.' 'Scaling circles' is a Department of Defense euphemism.
It's also used in FEMA, OEM and other emergency management services.
In environmental catastrophes, which are going to become national or
global, it's got to start someplace. It's going to start in one very
small, specific area. Therefore what happens is that the immediate
force containment is the greatest in the first circle, to try to
contain the spread of the disaster and keep it within that circle.


The environmental problem, to whatever extent it's possible, before it
spreads, will be neutralized or mitigated, in order to keep that
catastrophe within that circle, or, if it is likely that it is to
escape that circle, to attack whatever it is in such a fashion as to
mitigate its strength and its ability to contaminate or otherwise
affect other areas.


In the case of earthquakes, for instance, affecting the west coast,
beginning at Mt. Rainier and moving southward -- that's a different
type of scenario. That does not include as much Department of Defense
involvement. It includes separate protocols, wherein mostly FEMA and
OEM act as the senior coordinating agencies between municipal, county
and state disaster and containment, which is called Disaster and
Containment Units. Federal troops would only be brought in for the
purposes of maintaining control.


In a military or economic collapse situation, National Guard units
would provide any spare help they could in combating whatever the
problem is. Federal troops would be used in order to have the specific
authority simply to shoot anyone. There are plans for all sorts of
scenarios. The economic-disaster scenario is the one I always found
the most intriguing because it is the one that is least understood by
the American people.


Military control would be necessary when lines begin to form at the
banks, people trying to access their money. But that wasn't even
anticipated as a big problem. Lines would form at the banks, but it
was not even envisioned until sometime on Day Three because the
American people wouldn't get it. It would be announced that the stock
markets are down 2000 or 3000 points, and since we've always been
taught they'll come back, the people would still be buying stocks.


You could count on everybody remaining in ignorance all the way down
because the American people have never been taught Economics 101. The
American people wouldn't realize the full extent of it until the
markets were closed on the third day, or until the time when they went
down to cash a check and the bank was closed with soldiers out in
front. Then they would go down and see the gas station's closed. They
see the local supermarket has been shuttered, and there's federal
troops in front of it. Then they might begin to catch on. And remember
-- it's not just federal troops. In emergency-collapse protocols, even
before the declaration of a formal state of emergency or a state of
martial law, the local military authorities within any given county or
jurisdiction have the ability to essentially militarize anyone, that
is, any civilian. This would be more than just deputizing civilians.
It's federal. In other words, they would have the ability to
militarize and give military authority to a civilian force. This would
include not only police and the sheriffs and state police, but all
local law enforcement that exists below the state level would be
immediately militarized. They wouldn't take just anybody like they did
in Iraq. It would be like the military when they call for volunteers.
Then they'd have everybody and their brother-in-law volunteering,
waving around the American flag and so on.


You've got a lot of pickup-driving guys in this country with the gun
racks in the back and the Confederate flag flying. So you start waving
the American flag in front of their face and say, Hey, you're going to
get your chance you always wanted -- to fit your potbelly inside an
army uniform and carry a gun and shoot people. How appealing would
that be?


And besides, if you do this, then you're going to get to eat.


In other words, this is how it would unfold over three days, but, in
fact, very few Americans would know what to do about it or how to take
any precautions. They wouldn't have a clue because they don't
understand enough about economics to know what is happening. So that's
what it is -- Economic Armageddon. If the Bush-Cheney regime is re-
installed into power, that is effectively what Comptroller General
David Walker is saying.


In conclusion, since there is very little the people of the United
States can do to protect themselves. We're not going to make any
suggestions of how to protect yourselves because there's very little
you can do.


We could tell you to go out and buy gold coins and bury them in the
coffee can in the back yard and go to your nearest survivalist store,
but, frankly, that's useless. In the last analysis, it's a lot of
hype. There is very little the average US citizen could do.


The only thing that can prevent this, as the Comptroller alluded to
when he was asked by Barbara Walters, How do we prevent reaching the
problem by 2009? He said simply, "A change of regimes."


So how do you prevent it? Don't vote for Bush and Cheney -- and hope
that Bush does not use his emergency powers to cancel or postpone the
election by edict, powers which you, the flag-waving citizens, have
given him.


All flag-waving citizens, be warned. If you want to vote for Bush-
Cheney again, make sure you got plenty of Spam on hand.


Here's an interesting and humorous aside. A couple of days ago, Hormel
Foods, which makes Spam, announced that in the last six months there
have been record sales of Spam in the United States the survivalists'
food of choice. After all, they pride themselves on the fact, as the
spokesman for Hormel said, "It is the only food product you can buy
with an expiration that's 50 years."


When everything goes to hell, when all that man has created has turned
to dust again, the final legacy is going to be Spam. It will be the
last surviving item -- when the anthropologists of 20 thousand years
from now are digging sites and they see these enormous mountains of
unopened cans of Spam They'll have monuments to the past out of Spam.


So if Bush-Cheney has a second term in office, there will be some sort
of currency restriction, like Nixon did in 1971. On April 13, 2004,
Deputy Assistant Treasury Secretary John Boine talked about potential
currency restrictions. He used the word that's going to fuel the
flames of the survivalist and gloom-and-doom collapse people.


It's very, very telling that the U.S. Treasury may institute a
restriction on the amount of U.S. dollars that can be converted into
gold.


Furthermore, he intimated (and I suspected that this was coming,
although this wouldn't actually become law until Bush-Cheney was in
office for second term one way or another) that the Bush-Cheney regime
determines that the Gold Confiscation Act gives to Treasury the power
for so-called forced disclosure of gold holdings.


I'm not quite sure of the language of the Gold Confiscation Act from
1933. It just says, "compelled", as in citizens are lawfully compelled
to redeem gold for script. I don't think there was any such provision,
which he was inferring that there is. That was FDR's "Raw Deal" of
1934, when people were coerced into giving up their gold. But nowhere
in this act does it specifically authorize the Treasury to mandate
citizens to report their gold holdings. So if this gets any press at
all, particularly within the circles of gold bugs and so on, watch
out.


Furthermore, on Washington Journal they were talking about how FEMA
has recommended to the Office of Homeland Security to have increased
restrictions regarding citizen hoarding of long-term food and fuel
supplies. That's pretty sinister too.


What they're talking about is the purchase of long-term so-called
stores of survival food. FEMA was talking about some sort of
restriction preventing people from accumulating food stores; putting
it simply, that's what it means. The second point was to increase
restrictions that already exist.


FEMA was recommending even tighter restrictions on citizens building
their own private property underground storage tanks for the purposes
of long-term storage of fuel. The real intent of this is is threefold:
a) to restrict citizens' ability to hoard food; b) restrict citizens'
ability to hoard long-term storage of fuel; c) the forced
identification of citizens to reveal food and fuel stocks they may be
hoarding.


And that, in my opinion, is the real essence. The Bush-Cheney regime
was scared of having the FEMA angle put into the equation because they
knew what it means and how people would interpret it.


They have tried to use environmental legislation to restrict people's
ability to build fuel storage facilities on their own property -- to
get around what the true intent of that was.


But the bigger picture is that if you start to limit citizens' ability
to hoard fuel and food and shake them up by potential forced
identification of gold holdings or forced redemption.


In other words, what you don't want is citizens who have the ability
to store a lot of food and fuel and to own gold because they would be
able to resist state control in the future.


You've got to have every citizen on a rationing card to control the
civilian population. You can't have citizens out there hoarding food
and fuel because then people can say to government,"I ain't taking a
rationing card, baby, with my national ID card. I don't have to. You
can't control me through food and fuel and ever-worthless paper
currency."


I used to make fun of these people. But now, things have come full
circle on this debate. The Bush-Cheney regime is making it
increasingly clear through their small changes in policy. Not a lot of
people monitor these decisions, but I do. And the pattern is becoming
increasingly clear.


In fact, I would believe that those of the survivalist mentality (the
food, fuel, the gold coins in the coffee can in the back yard) people
who think that way will be ultimately vindicated - if George Bush has
a second term in office.


People should quit making fun of them because they would be vindicated
- even though they were all burned out, twenty-dollared to death,
buying books and tapes, and discredited by mainstream media. It may
sound like a hollow victory, but it won't be a hollow victory for them
- them that's got the Spam...

[smiths]

woops, it was a mistake you see,

http://www.ft.com/cms/s/0/0c82561a-2697 ... ck_check=1

Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.

Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.




yeah, a bug

[smiths]

The Feds had their first “NET MISS’ on May 14th. That means that their own reserves were inadequate to meet projected requirements. Fed holdings of U.S. Treasury securities fell $22.3 billion for a daily average of $520.1 billion. The central bank had about $713 billion of Treasuries two months ago. It may mean that even the Federal Reserve may not be able to meet the growing demand for funds by banks. That may be why Bernanke is urging the banks to attempt to get additional capital from outside investors by selling stocks or financing through bond issues.

NEW YORK, May 15 (Reuters) - The Federal Reserve said on Thursday it had one large one-day net miss in its reserve projections in the week ended May 14.
The miss occurred on Wednesday, May 14, when float was higher than expected and Treasury balances were lower than expected resulting in an increase in reserves.

http://www.reuters.com/article/bondsNew ... 4420080515

[ninakat]

This is quite the warning, especially considering that it's coming from the Royal Bank of Scotland and mainstream media.

RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 5:42pm BST 18/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.

US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.

The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.

Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.

"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

[isachar]

Another huge iceberg - pension funds beginning to fess up to huge losses:

http://www.nysun.com/new-york/city-pens ... ons/80738/

City Pension Funds Lose Billions
Taxpayers Could Be On the Hook
By ROSS GOLDBERG, Special to the Sun
June 26, 2008

New York City officials are bracing for increased pressure on the budget as the city's pension funds are reeling from the credit crisis and posting billions of dollars in losses.

In the nine months leading up to March 31, the city's five pension funds lost a total of nearly $5 billion, or 4.4%, according to data from the city comptroller's office. This is a far cry from projections published as recently as last month, when budget planners assumed the pension system would post no losses.

If those losses are not recovered by the end of the fiscal year, which ends Monday, the city will have to pay out several billion dollars through 2015, with the first payment of $190 million set for 2010.

The government will have to make up the shortfall from the poor performance of the pension funds at a time when it is already suffering from tax revenue losses due to a souring economy.

"In itself, it's manageable," the research director for the Citizens Budget Commission, Charles Brecher, said of the pension fund losses. "The fact that it's going to be combined with revenue shortfalls means that we've got serious problems."

The Teachers' Retirement System of the City of New York, which has lost 5.06% of its value in the nine months ending March 31, has been the worst performer so far this year. The New York City Employees' Retirement System, which lost 3.98% in the same period, performed the best. Other pension funds include the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the Board of Education Retirement System of the City of New York. Numbers for the state pension system are not yet available, a spokesman for the state comptroller said.

The city's funds' performance so far this fiscal year "adds significantly to the amount of money the city has to contribute," a spokesman for the Independent Budget Office, Doug Turetsky, said. "The city is going to be facing bigger increases than perhaps previously anticipated."

New York City's pension funds did worse during the nine months ending March 31 than other public pension funds worth more than $1 billion, which posted an average loss of 3.3% during that period, according to an index from consulting group Wilshire Associates.

New York's pension funds may have suffered more than their peers because of heavy investments in stocks. "They have such a high exposure to stocks that if the stock market isn't doing well, it's going to be more visible for them," the editor of the newsletter Pensions & Investments, Nancy Webman, said. "But in a year when the market is doing well, they're going to be fabulous."

A spokesman for Comptroller William Thompson Jr., who is an investment adviser to New York City's pension funds and is a likely candidate for mayor in 2009, said the funds have diversified in recent years. "A challenging market over the past year has affected investors worldwide," a spokesman, Michael Loughran, said in a statement. "However, the funds are performing on pace with the major market indexes, due in part to the diversification of the portfolio."

According Wilshire's index, other large public funds have returned an average of 12.01% annually over the five years ended March 31, 2008. New York's worst-performing fund, the teachers' fund, returned 11.97% during that period, while the best, the police fund, returned 12.89%.

While the funds' gains over the past several years should help offset the rough times experienced during a slowing economy, legislators took advantage of the strong performance of the funds to authorize additional pension benefits, the director of the Empire Center for New York State Policy, E.J. McMahon, said. The city's annual contribution to the pension system will have nearly doubled between fiscal years 2005 and 2009, when it will owe about $6.1 billion.

"A large chunk of all the revenue generated by the economic growth of the last few years has been consumed by the increase in pension costs," Mr. McMahon said. "The way the legislature approached pension sweeteners is just to pass the union's wish list."

------------------------------------------------------------------------------

The USS Titanic is taking on water fast. Ben, babyBush and the Neo-cons continue to blow smoke, print funny money, steal other people's countries and resources, and suck on their passies while Dick plays with their..... well, you know.

Why did he shoot that lawyer guy anyway? It's not like he just happened to be staying at the ranch that day, and just happened to be invited to go lawyer shooting.

I think it's because he was handling some of Dick's offshore accounts and had his finger in the cookie jar.

[ninakat]

Barclays warns of a financial storm as Federal Reserve's credibility crumbles

Last Updated: 12:01am BST 28/06/2008

US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.

The grim verdict on Ben Bernanke's Fed was underscored by the markets yesterday as the dollar fell against the euro following the bank's dovish policy statement on Wednesday.

Traders said the Fed seemed to be rowing back from rate rises. The effect was to propel oil to $138 a barrel, confirming its role as a sort of "anti-dollar" and as a market reproach to Washington's easy-money policies.

The Fed's stimulus is being transmitted to the 45-odd countries linked to the dollar around world. The result is surging commodity prices. Global inflation has jumped from 3.2pc to 5pc over the last year.

advertisementMr Bond said the emerging world is now on the cusp of a serious crisis. "Inflation is out of control in Asia. Vietnam has already blown up. The policy response is to shoot the messenger, like the developed central banks in the late 1960s and 1970s," he said.

"They will have to slam on the brakes. There is going to be a deep global recession over the next three years as policy-makers try to get inflation back in the box."

Barclays Capital recommends outright "short" positions on Asian bonds, warning that yields could jump 200 to 300 basis points. The currencies of trade-deficit states like India should be sold. The US yield curve is likely to "steepen" with a vengeance, causing a bloodbath for bond holders.

David Woo, the bank's currency chief, said the Fed's policy of benign neglect towards the dollar had been stymied by oil, which is now eating deep into the country's standard of living. "The world has changed all of a sudden. The market is going to push the Fed into a tightening stance," he said.

The bank said the full damage from the global banking crisis would take another year to unfold.

Rob McAdie, Barclays' credit strategist, said: "The core issues have not been addressed. We're still in a very large deleveraging cycle and we're seeing losses continue to mount. We think smaller banks will struggle to raise capital. We're very bearish - in the long-term - on high-yield debt. The default rate will reach 8pc to 9pc next year."

He said investors had taken their eye off the slow-motion disaster engulfing the US bond insurers or "monolines". Together these firms guarantee $170bn of structured credit and $1,000bn of US municipal bonds.

The two leaders - MBIA and Ambac - have already been downgraded as the rating agencies belatedly turn stringent. The risk is further downgrades could set off a fresh wave of bank troubles. "The creditworthiness of many US financial institutions will decline in coming months," he said.

The bank warned that engineering and auto firms we're likely to face a crunch as steel and oil costs surge. "Their business models will have to be substantially altered if they are going to survive," said Mr McAdie.

A small chorus of City bankers dissent from the view that inflation is the chief danger in the US and other rich OECD countries. The teams at Société Générale, Dresdner Kleinwort, and Banque AIG all warn that deflation may loom as housing markets crumble under record levels of household debt.

Bernard Connolly, global startegist at Banque AIG, said inflation targeting by central banks had become a "totemism that threatens to crush the world economy".

He said it would be madness to throw millions out of work by deflating part of the economy to offset a rise in imported fuel and food prices. Real wages are being squeezed by oil, come what may. It may be healthier for society to let it happen gently.

[Ben D]

Fortis chairman sees more trouble for banks

AMSTERDAM, June 27 (Reuters) - The supervisory board chairman of Fortis defended the Dutch-Belgian bank's measure to shore up its finances, saying they were taken because banks would likely face more trouble ahead.

Chairman Maurice Lippens said on Friday the bank had taken extraordinary measures due to the exceptional circumstances.

"We do it because the economic circumstances and what we see in America make us think it will get a lot worse before it gets better," Lippens told Dutch broadcaster RTL Z in an interview.

Fortis raised 1.5 billion euros ($2.4 billion) from a heavily discounted share issue, part of a package of measures to shore up its finances by more than 8 billion euros.
(Reporting by Niclas Mika)

Link

[Ben D]

'Financial catastrophe looms': analyst

By economics correspondent Stephen Long
Tue Jul 1, 2008 8:05am AEST

BIS: 'Current market turmoil is without precedent in the post-war period'.

Bank for International Settlements: annual report The Bank for International Settlements (BIS) says global markets may still be set for severe economic downturn.

Last year, when inflation was low and the world economy was still strong and stable, BIS gave a a prescient warning about the growing risks that could bring it all undone.

In its latest annual report, released last night in Basel Switzerland, BIS gives a grim and candid assessment.

"The facts suggest that the magnitude of problems to be faced could be much greater than many now perceive... while difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect," the report says in part.

Despite this, it cautions against using rate cuts to bail out the world economy, arguing that loose monetary policy helped create the mess in the first place.

Satyajit Das is a risk analyst who tipped the global credit crisis.

"It's an extraordinary statement of just how close the world economy is to a total financial meltdown," he said.

Associate Professor Dick Bryan, an economist from the University of Sydney, uses the same adjective.

"It's a quite extraordinary message," he said.

"It's a big statement that the world economy could potentially be facing one of the biggest crises for the last 150 years."
Most central banks and the International Monetary Fund are tipping only a mild hit to world economic growth.

The Bank for International Settlements, whose chief economist Harry White is retiring, says they are wrong.

"The Bank for International Settlements goes to great lengths to juxtapose their own view to what they call the consensus and that consensus is saying that inflation will be a blip that it'll only be around for a year and we'll get recovery and they're saying no," Associate Professor Bryan said.

"The central banks have used loose monetary policy and low interest rates to bail themselves out of every crisis since 1987 and what they are saying is at some point in time the piper must be paid," Satyajit Das said.

"The fears about higher inflation and what central banks can and can't do is really quite frank. I think it would be best to sum up this report by saying the super-hero central banker is dead."

The Bank for International Settlements notes parallels between the current financial turmoil and the great economic woes of modern history.

"The 1930s, the 1870s, they're referring to parallels with the Asian financial crisis and they're giving a big serve to the way in which the world financial system has been run," Associate Professor Bryan said.

"The statements in here are talking about comparisons to the 1920s depression and is actually pointing fingers at central banks and their policies and their misunderstanding of how the financial system works and their love of the new-fangled things that have brought the world to the precipice of what could be one of the most major financial catastrophes in the history of economics," Satyajit Das said.

He adds that he has never seen a report as dire as this from a global economic agency.

"It's telling central banks that they got it wrong, that they shouldn't have let us get into this precarious position, that they should have been constraining credit earlier and that they've put us in a position now where there just aren't clear policy options," Associate Professor Bryan said.

Link

[slow_dazzle]

Scary stuff Ben D. I don't think we're going to make it to the end of 2008 without serious grief. The only ray of hope is there appears to be some demand destruction in the US of around 800,000 bpd. Whether that will dampen prices remains to be seen. Even if it does there still remains the real problem of not enough to go around at some point as demand picks up again.

I still think the mess we are in has been allowed to happen, if not made to happen. As to why this might be deliberate, I'm not sure but the way those in the know have watched this develop beggars belief. OTOH maybe there is nothing that could have been done to stop the dominoes falling once they started to tip.

After reading the articles that Jeff posted today about Obama, I got a glimpse of what the response to increasing unrest might be and that is division and fear. And the west criticises religous fundamentalism in the ME? Pot versus kettle there methinks.

In the UK the religous base isn't big enough for that approach to work so another tactic is being employed by the look of it. Perhaps it's not coincidental that a report was published in the UK today (or yesterday) claiming "terrorism" (sic) won't go away for at least 20 years. Now who can predict the future that far ahead? Answer = nobody. Coming out with a statement like that is an insult to anyone with enough wit to see that it is preposterous to claim to know how the world will look two decades or so from now. So what lies behind the report? Answer = possible plausible excuse for even more control as TSHTF.

Link

Edit - Spell check tells me religous is spelled religious lol! On a more serious note I think the credit crunch (sounds like a breakfast cereal to me) is a cover for the economic collapse caused by oil demand exceeding supply; a bait and switch away from the truth. The media was full of stories about credit/financial problems from about last August onwards. It's only now that stories about energy shortfalls are percolating out into the press. But the meme of a credit collapse has permeated the collective view of what is going on, to such an extent, few people really understand the true reason for the economic collapse.

[isachar]

Scary stuff Ben D. I don't think we're going to make it to the end of 2008 without serious grief. The only ray of hope is there appears to be some demand destruction in the US of around 800,000 bpd. Whether that will dampen prices remains to be seen. Even if it does there still remains the real problem of not enough to go around at some point as demand picks up again.

I still think the mess we are in has been allowed to happen, if not made to happen. As to why this might be deliberate, I'm not sure but the way those in the know have watched this develop beggars belief. OTOH maybe there is nothing that could have been done to stop the dominoes falling once they started to tip.

After reading the articles that Jeff posted today about Obama, I got a glimpse of what the response to increasing unrest might be and that is division and fear. And the west criticises religous fundamentalism in the ME? Pot versus kettle there methinks.

In the UK the religous base isn't big enough for that approach to work so another tactic is being employed by the look of it. Perhaps it's not coincidental that a report was published in the UK today (or yesterday) claiming "terrorism" (sic) won't go away for at least 20 years. Now who can predict the future that far ahead? Answer = nobody. Coming out with a statement like that is an insult to anyone with enough wit to see that it is preposterous to claim to know how the world will look two decades or so from now. So what lies behind the report? Answer = possible plausible excuse for even more control as TSHTF.

Link

Edit - Spell check tells me religous is spelled religious lol! On a more serious note I think the credit crunch (sounds like a breakfast cereal to me) is a cover for the economic collapse caused by oil demand exceeding supply; a bait and switch away from the truth. The media was full of stories about credit/financial problems from about last August onwards. It's only now that stories about energy shortfalls are percolating out into the press. But the meme of a credit collapse has permeated the collective view of what is going on, to such an extent, few people really understand the true reason for the economic collapse.

SD that 800,000 bpd in 'demand destruction' is just the first round of conservation/substitution.

As I suggested in our last discussion on this subject some months back when gas was about $2.50 per gal., and increase to about $4- $5 per gal. gas would create a substantial decrease in demand due to conservation and the substitution effect.

This is indeed what is now happening, aided by lower consumption due to a slowing of the economy and related conservation by industry.

Most of the impact of the recent runup to the current price will not be fully reflected in demand stats for another year or two to come, so I would expect continued 'demand destruction' as you refer to it to come even if oil/gas prices remain at today's level.

Also, I would note that about $40 of the increase in the price of a barrel of oil has far more to do with the debasement of the US dollar caused largely by the credit/debt crisis and the Fed's decision to flood the world with hundreds of billions of dollars of additional paper and electronic dollar credits to banks.

I would guesstimate the majority - perhaps the large majority - of the remainder of the runup in price from the $50 - $65/bbl level has been due to Iraq's pre-invasion production going mostly offline, and Bush's war tax premium which includes much higher consumption by the war machine and market risk premium caused by the war and related saber-rattling against Iran.

Much of this has been purposeful.

Greg Palast has persuasively documented James Baker's 'Plan B' for Iraqi oil - which was to keep it off the market to run up prices.

Clearly the perps are trying to line their pockets as much as they can before Jan. 2009. I expect the levels of theft and profiteering to only increase.

Shame there hasn't been more than a handful in the weenie corrupt Congress with a spine to have imposed a windfall profit tax of, say, 30-50% on the oil companies, the proceeds of which could/should have been used to provide tax credits/incentives for installation of solar and alternative heating/cooling systems and more efficient mobility and transportation solutions.

[slow_dazzle]

I realise the high prices are partly due to the weakness of the $. One circle I can't square though is whether moving to another currency would alleviate the situation to any significant degree. And speculation seems to be another part of the reason for the high prices. But, yet again there is another circle that can't be squared and that is whether those previously excluded from the market would come back in at lower prices and drive them back up. These are two difficult questions that could only be answered by putting them into action and the only one that is likely to be answered is the re-entry of previously excluded buyers into the oil markets: there is little chance of the $ being dropped as primary currency for oil transactions.

Thanks for your comments isachar - good brain food in there.

[isachar]

I realise the high prices are partly due to the weakness of the $. One circle I can't square though is whether moving to another currency would alleviate the situation to any significant degree. And speculation seems to be another part of the reason for the high prices. But, yet again there is another circle that can't be squared and that is whether those previously excluded from the market would come back in at lower prices and drive them back up. These are two difficult questions that could only be answered by putting them into action and the only one that is likely to be answered is the re-entry of previously excluded buyers into the oil markets: there is little chance of the $ being dropped as primary currency for oil transactions.

Thanks for your comments isachar - good brain food in there.

SD, moving to another currency not subject to debasement (or gold or silver) would help, though it would not eliminate the risk and war premiums. Everyone pays those.

There would be some rebound of demand among those recently priced out (though less than 100% in the short to mid term) if prices should fall back to earlier levels.

That is why I don't use the term of 'demand destruction' for this effect as it suggests permanence. If people die or incomes decrease substantially and for a substantial period of time, then I think the term demand destruction is appropriate.